Simple IRA Question | Ed Slott and Company, LLC

Simple IRA Question

Person 1 has a Simple IRA established by his employer using Form 5305-SIMPLE. The institution/employer does not allow the Simple to be held at a different custodian. Person 1 is still working at the employer.

Can Person 1 rollover their Simple IRA to a Traditional IRA (at a different custodian) via a tax-free, trustee-to-trustee direct transfer and leave the Simple IRA open for future contributions? Ultimately, they want the funds at a different institution but still be able to participate in the Simple IRA plan.

Thank you.

  • A 5305-SIMPLE IRA custodian must allow transfers/rollovers without cost or penalty at least monthly
  • A transfer is deemed to be made without cost or penalty if no liquidation, transaction, redemption or termination fee, or any commission, load (whether front-end or back-end) or surrender charge, or similar fee or charge is imposed  with respect to the balance being transferred.
  • If it has been < two (2) years since the first contribution, a trustee -> trustee transfer must go to another SIMPLE IRA. If it has been >= two (2) years, a trustee -> trustee transfer can go to a traditional IRA, a Roth conversion or any eligible employer retirement plan.
  • A custodian can limit election of this option to the notice/enrollment period from 11/2 - 12/31.
  • If it has been < 2 years, not all SIMPLE IRA custodians offer the rollover only (frozen) accounts necessary. Vanguard does.
  • P.S. Be prepared for; ignorance, resistance, denial and even refusal. This is especiallyu true of advisor based plans. This is all IRS guidance in Notice 98-4. You may have to bring this to the attention of the employer if you get push back.

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